Regions Profit Slides, Beats Estimates
Updated from 10:42 a.m. EDT
Regions Financial's
(RF) - Get Report
sale of
Visa
(V) - Get Report
shares and other investment securities enabled the southeastern bank to exceed analyst estimates for the first quarter.
Birmingham, Ala.-based Regions posted a profit from continuing operations of $336.7 million, or 48 cents a share, vs. $474.1, or 65 cents a share, in the year-ago period. Excluding merger-related costs, the bank reported a profit from continuing operations of $383.6 million, or 55 cents a diluted share, compared to $504.5 million, or 69 cents per share in the first quarter of last year. Analysts had been forecasting a profit of 48 cents a share, according to Thomson Financial.
The results include a $91.2 million gain from the sale of Visa shares after the electronic payment processor's
last month. Regions earned an additional $91.6 million from the sale of investment securities, masking the increases in non-performing assets and loan charge-offs.
"Given the turmoil throughout the financial industry, Regions is successfully managing through the challenges, and remains well-positioned for the balance of 2008 and beyond," Regions Chairman, President and CEO Dowd Ritter said in a company statement.
In an ensuing conference call, however, Ritter said he saw the residential real estate market continuing to deteriorate.
At the end of March, total non-performing assets were $1.2 billion, a jump over the $864 million booked at the end of December. The bank also noted that it expects non-performing asset and charge-off levels to increase throughout 2008 as "the strained economic climate continues."
Net loan charge-offs increased to $125.8 million for the first quarter, vs. $107.5 million for the fourth quarter of 2007. Regions set aside $181 million for loan losses, $55 million over the first quarter net loan charge-offs. The increase is due to the bank's residential homebuilder portfolio and home equity portfolio. The exposure to the homebuilder portfolio is $6.2 billion.
On a conference call to discuss results, Ritter said the bank had to write off loans of properties that rapidly lost value in the housing and credit downturns. He noted Fort Myers and Cape Coral in Florida were among the worst housing markets for the bank.
"Some homeowners when they tried to sell, the value on their property was 40% below what they paid for," he said. "They just walked away."
Regions created the Special Asset division in the latter part of 2007 for some problem loans. He said $1.2 billion in loans are in the area, including a large unsecured loan to a national homebuilder he would not name.
There were some glimmers of good news within the earnings announcement, although most of it was tempered with negatives. Total loans increased 4%, but with a narrower net interest margin. Morgan Keegan, Regions' regional investment firm, brought in total revenue of $338.9 million, but took a loss of $24.5 million on two funds that also have pending litigation associated with them. And while 21,400 accounts were opened through Morgan Keegan, it was only 100 more than the last quarter and 3,600 fewer than the previous year.
Equity capital markets revenues were up in the first quarter as a result of increased trading in oil and gas and strong investment banking business, but commission revenue and private client revenue were both down. Total customer assets had dropped to $76.3 billion from $80 billion at the end of December.
The bank is in a capital conservation mode and has no plan to repurchase shares at this time, Ritter said on the call. Regions also is comfortable with its dividend and will keep it at the current level, he said.
The stock was jumping 9.2% to $20.27 in recent trading.
Know What You Own
: RF operates in the banking and financial services industry, and some of the other stocks in its field include
Bank of America Corporation
(BAC) - Get Report
,
SunTrust Banks
(STI) - Get Report
and
Wachovia
(WB) - Get Report
. These stocks were recently trading at $35.72, +0.39%, $51.52, +2.30% and $25.62, +0.29%, respectively. For more on the value of knowing what you own, visit TheStreet.com's
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